The OBR’s formal rights and responsibilities are outlined in four documents:
The Budget Responsibility and National Audit Act sets out the overarching duty of the OBR to examine and report on the sustainability of the public finances. It also gives complete discretion to the OBR in the performance of its duties, as long as those duties are performed objectively, transparently and independently and takes into account the sitting government’s policies and not alternative policies. The Charter outlines the OBR’s independence which includes complete discretion to decide:
• The methodology underpinning the OBR’s forecasts, assessment and analyses;
• the judgements made by the OBR in producing these outputs;
• the content of the OBR’s publications; and
• the OBR’s work programme of research and additional analysis.
The OBR is a non-departmental public body, under the Budget Responsibility and National Audit Act 2011. The Act provides for the establishment of the office, and sets out its functions and broad governance structure.
The Charter for Budget Responsibility
The Charter for Budget Responsibility sets out the OBR’s remit, how it is to perform its duties, the required content of its key publications and the arrangements for determining the timing of its forecasts and other key publications. It also sets out the Government’s fiscal targets and has therefore been updated a number of times in recent years. The October 2015 update introduced the requirement for the OBR to produce a report on fiscal risks every two years and formalised the requirement to report on trends in welfare spending each year. All previous versions of the Charter are available at the bottom of this page.
The OBR’s governance and management arrangements are set out in greater detail in a Framework document drawn up by the Treasury and agreed with the OBR. This describes the purposes of the OBR, how it is accountable to Parliament and the Chancellor, its governance and structure, the responsibilities of the accounting officer, the content of the annual report, the audit arrangements, and its managements and budgeting processes. The Framework document was reviewed and amended in May 2014. The previous version is available at the bottom of this page.
Memorandum of Understanding
The Memorandum of Understanding sets out the agreed working relationship between the OBR, HM Revenue and Customs, the Department for Work and Pensions, and HM Treasury. It sets out the arrangements needed for effective working, covering each institution’s key responsibilities, coordination of the forecast process, and the process for information sharing.
The OBR uses a large-scale macroeconomic model for the production of the economic forecast. The model was originally designed and developed by the Treasury, but is now jointly maintained and developed by the Treasury and the OBR. The macroeconomic model memorandum of understanding establishes a framework for the joint governance, management and development of the macroeconomic model.
The OBR’s non-executive members commissioned Kevin Page to lead the first External review into the work of the OBR in April 2014. The Review concludes that the OBR has “laudably achieved the core duties of its mandate” and “has succeeded in reducing perceptions of bias in fiscal and economic forecasting”. It also makes recommendations on how to build upon our early successes as we approach the end of our first five years.
In June 2015, the Chancellor to the Exchequer asked Sir Dave Ramsden, Chief Economic Adviser to HM Treasury, to carry out a review of the OBR. The review, published in September 2015, reflected the findings in the External review led by Kevin Page in summer 2014 and made a number of recommendations that would strengthen our existing work and allow us to provide deeper and broader scrutiny of its management of the public finances.
Read the exchange of letters between the Chancellor to the Exchequer and Robert Chote on the Treasury Review of the OBR on our Governance and reporting page and the Treasury Select Committee hearing on the conduct and implications of the HM Treasury-led review.
The Scotland Act 2012 gave new powers to the Scottish Parliament relating to taxation and borrowing. In April 2015, stamp duty land tax (SDLT) and landfill tax were fully devolved to the Scottish Parliament and replaced by the land and buildings transaction tax and the Scottish landfill tax respectively.
The Command Paper: Strengthening Scotland’s Future – published alongside the Scotland Bill in 2010 – set out our role in providing forecasts of Scottish income tax, landfill tax, stamp duty land tax and aggregates levy receipts.
In September 2014, the Smith Commission recommended the devolution of air passenger duty (APD) to the Scottish Parliament and the assignment of a share of VAT revenues. It also proposed more flexible powers over income tax than those in the 2012 Act. In May 2015, the UK Government committed to implement the Smith Commission recommendations in full, and passed the resulting Scotland Bill 2016 as an act of parliament in March 2016.
The Scottish Fiscal Commission (SFC) was established in 2014 as the independent fiscal institution for Scotland. The SFC operated as a non-statutory body from June 2014 to March 2017, scrutinising the Scottish Government’s forecasts of tax revenues devolved to Scotland. From 1 April 2017 the SFC has become a statutory body as set out in the Scottish Parliament’s Scottish Fiscal Commission Act 2016 and will directly produce forecasts for the Scottish Government’s receipts from the fully devolved taxes, income tax and expenditure on devolved social security. The SFC is a fellow member of the OECD’s network of Independent Fiscal Institutions.
In February 2016 the Scottish and UK Governments’ agreed the Scottish Government fiscal framework. This sets out our role in continuing to produce forecasts for the whole of the UK and also sets out a duty of cooperation between ourselves and the SFC.
We are drafting a full memorandum of understanding with the SFC and will publish it once is has been agreed. In the interim we are operating using the following principles.
The Wales Act 2014 gave new powers to the Welsh Assembly relating to taxation and borrowing. It provides for the full devolution of SDLT and landfill tax from April 2018. The Wales Act 2014, together with the Wales Act 2017, also provides for the partial devolution of income tax.
The Command Paper: Wales Bill: Financial Empowerment and Accountability – published alongside the Wales Bill in 2014 – required us to begin to forecast Welsh taxes alongside Autumn Statement 2014 and twice a year thereafter. This currently includes forecasts for stamp duty land tax, landfill tax, aggregates levy and the Welsh rate of income tax.
The Tax Collection and Management (Wales) Act 2016 created a new Welsh Revenue Authority, which will oversee the collection of devolved taxes in Wales. The Welsh Government also announced its intention to replace SDLT with a ‘land transaction tax’ and landfill tax with a ‘landfill disposals tax’.’
In December 2016 the Welsh and UK Governments agreed the Welsh Government fiscal framework. This sets out our role in continuing to produce forecasts for the whole of the UK public finances including revenues from taxes devolved to Wales. The Wales Act 2017 sets out the OBR’s right to information from the devolved Welsh authorities.
We have agreed a Memorandum of Understanding with the Welsh Government. It sets out the arrangements needed for effective working, covering each institution’s key responsibilities, coordination of the forecast process, and the process for information sharing.
An agreement is in place to devolve corporation tax to Northern Ireland from April 2018. The Northern Ireland Executive announced this in A Fresh Start The Stormont Agreement And Implementation Plan.